DCD Group exits the very heavy engineering industry

Planned rationalisation and consolidation of the DCD Heavy Engineering operation.

South Africa’s downward economic spiral is best characterised by the shutting down of heavy industries. Major steel and aluminium facilities have gone in recent years, including those belonging to the giant Russian Evraz group, India’s Tata Steel and BHP Billiton. Now, with South Africa’s ratings downgrade to junk status, things are likely to get much worse.

One company that has been affected by the parlous state of South African manufacturing is the DCD Group.

Rebranded in 2012, it was built from the remnants of the once-mighty Dorbyl industrial empire, which had been plagued by alleged criminal dealings among executives. It is now 48% black owned, with Investec holding a similar-sized stake.

DCD has just started closing its world-class heavy engineering operations as a result of depressed market conditions in the global mining sector. This unit – within the group’s mining and energy division – has focused on manufacturing large capital equipment components for the mining industry from its plants in Vereeniging and Vanderbijlpark.

“For the past number of years, DCD’s Heavy Engineering Operation, situated in Vereeniging and Vanderbijlpark, has focused on the manufacturing of large capital equipment components for the mining industry. As a result of the depressed market conditions in the global mining sector, with very few new capital projects materialising, DCD’s Heavy Engineering Operation has been loss making since mid-2013,” said Digby Glover, CEO of DCD Group, in a statement released on 31 March 2017.

“We have implemented a number of different actions to restore the business to profitability. These actions have not been sufficiently successful and the Group has had no choice other than to explore more aggressive alternatives in order to preserve cash.”

“Our analysis has included a broad range of issues – including market needs, the effect on various stakeholders, the current economic climate and outlook, the various businesses cost structures, contractual and commercial obligations, the businesses competitive position and future potential, to name a few.”

“The decision process has been very complex and it is well understood that any option selected can have a significant impact on all stakeholders. Taking everything into consideration, it has been decided to exit the very heavy engineering (such as winders, mills and drums) related markets after completion of the current orders on hand. This decision affects both the South and Vanderbijlpark works. The exit from this market will be conducted in a responsible manner ensuring all commitments to stakeholders are met.”

Glover added that the light and medium engineering parts of the business are to be consolidated into DCD’s joint venture business Gravico (Pty) Ltd trading as Gravico Heavy Engineering. This business will be run out of the North works and its focus will be on the mining and industrial sectors.

“We acknowledge that this decision will affect a number of people, but it is not possible to continue operating in the current situation. The process will start on 31 March 2017 and will continue for a number of months to facilitate as smooth a transition as possible. A key part of the process will be continuous engagement and consultation with all affected parties to ensure that we move forward as effectively as possible.”

This announcement comes after the recent closures of DCD Venco in Newcastle and DCD Marine. It is also reported that DCD Wind Towers is in trouble.

DCD Group also makes heavy engineering products for the rail, defence, renewable energy and marine sectors. But these markets are also in deep trouble.

The group’s DCD Wind Towers facility in the Coega industrial zone near Port Elizabeth – a part of the heavy engineering division – has stood empty since November 2016 as a result of Eskom’s refusal to sign agreements to buy power from South Africa’s renewable energy sector. The plant can produce up to 200 wind towers a year.

The R536 million factory is a joint initiative between the DCD Group and two state-managed entities, the Industrial Development Corp and the Coega Development Corp. This means government-funded industrial development projects are being undermined by its own parastatals.

Glover says DCD Wind Towers has begun shedding jobs, and is likely to close completely if Eskom refuses to act.

“Cash runs out within weeks. This means DCD’s whole investment will be lost, with little chance that lenders will recover debt. This is ‘massive value destruction’ -140 jobs will be lost.”

Meanwhile, DCD Marine, the 114-year-old forerunner to the group, has been put into voluntary business rescue after two years of “very difficult trading”.